Beware of the ticking time bomb hiding in your 401(k)
For working Americans with access to a 401(k), there’s perhaps no easier way to save for retirement. You tell your employer how much money you want to contribute per year or per pay period, and that money gets deducted from your paychecks accordingly.
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Required minimum distributions can create a costly surprise
RMDs aren’t just annoying. They could push you into a higher tax bracket in retirement, cause you to get taxed on your Social Security benefits, and leave you paying surcharges on your Medicare premiums.
Of course, the larger your 401(k) balance is once RMDs start, the larger those mandatory withdrawals are apt to be. But if you don’t need to withdraw all that money each year, it could create a huge headache.
Planning ahead is crucial
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Another option is to carefully manage 401(k) withdrawals before RMDs begin. Taking larger withdrawals during lower-income years could reduce your future tax burden.
While 401(k)s make it easier for some people to accumulate retirement wealth, they have a huge potential drawback. It’s important to understand how RMDs might affect your taxes and overall financial situation in retirement so you can plan around them.
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Original source: https://www.livenowfox.com/money
